Suppose a firm has an annual budget of $200,000 in wages and salaries,$75,000 in materials,$30,000 in new equipment,$20,000 in rented property,and $35,000 in interest costs on capital.The owner/manager does not choose to pay himself,but he could receive income of $90,000 by working elsewhere.The firm earns revenues of $360,000 per year. What are the annual economic costs for the firm described above?
A)$450,000.
B)$120,000.
C)$90,000.

Question

Quizplus · Accepted Answer

The annual economic cost includes all explicit costs (wages, materials, equipment, rent, interest) and opportunity cost (foregone income by the owner/manager). Therefore, the total economic cost for the firm is $200,000 + $75,000 + $30,000 + $20,000 + $35,000 + $90,000 = $450,000.

Suppose a Firm Has an Annual Budget of $200,000 in Wages